1 00:00:01,020 --> 00:00:03,870 Todd Bishop: Hi everybody and welcome to GeekWire. I'm GeekWire co- founder, 2 00:00:03,870 --> 00:00:04,590 Todd Bishop: Todd Bishop. 3 00:00:04,800 --> 00:00:06,480 John Cook: I'm GeekWire co- founder John Cook. 4 00:00:06,900 --> 00:00:09,780 Todd Bishop: Well, John, I was just looking at Silicon Valley Bank's 5 00:00:09,780 --> 00:00:14,489 Todd Bishop: website and what would normally be a bragging point looks 6 00:00:14,490 --> 00:00:18,149 Todd Bishop: to me now more like a major warning sign. The 7 00:00:18,150 --> 00:00:20,250 Todd Bishop: key point that they make right off the bat on 8 00:00:20,250 --> 00:00:24,480 Todd Bishop: their website is nearly half of U. S. venture backed 9 00:00:24,480 --> 00:00:29,130 Todd Bishop: technology and life science companies bank with Silicon Valley Bank. 10 00:00:29,610 --> 00:00:33,389 Todd Bishop: Regulators Friday morning shut down Silicon Valley Bank and put 11 00:00:33,389 --> 00:00:36,540 Todd Bishop: it in the hands of the FDIC. This has huge 12 00:00:36,540 --> 00:00:39,540 Todd Bishop: implications for the tech industry for the very reason of 13 00:00:39,540 --> 00:00:42,630 Todd Bishop: that stat that I just cited. John, you've been tracking 14 00:00:42,630 --> 00:00:45,870 Todd Bishop: this news, doing some reporting on your own. Give us 15 00:00:45,870 --> 00:00:47,070 Todd Bishop: a sense for what you're learning. 16 00:00:47,250 --> 00:00:51,659 John Cook: Well, it's meltdown. Really, I mean, it is a absolute 17 00:00:51,659 --> 00:00:57,000 John Cook: meltdown. As we're recording this right now, it's unclear if 18 00:00:57,000 --> 00:01:00,000 John Cook: it's a meltdown that is spreading to other parts of 19 00:01:00,000 --> 00:01:02,429 John Cook: the economy or if this is going to be just 20 00:01:02,429 --> 00:01:06,270 John Cook: contained in the startup and venture capital community. Right now 21 00:01:06,270 --> 00:01:10,080 John Cook: it is meltdown mode in the startup and venture capital 22 00:01:10,080 --> 00:01:13,590 John Cook: world, for sure. If you were to look back on 23 00:01:13,650 --> 00:01:16,590 John Cook: Monday of this week and talk to entrepreneurs or venture 24 00:01:16,590 --> 00:01:20,130 John Cook: capitalists about the biggest risks they were facing this week, 25 00:01:20,550 --> 00:01:23,880 John Cook: I don't think one would've said Silicon Valley Bank, which 26 00:01:23,880 --> 00:01:27,359 John Cook: as you said Todd, banks, over 50% of the venture 27 00:01:27,360 --> 00:01:30,629 John Cook: backed startups in the country, frankly in the Seattle area 28 00:01:30,629 --> 00:01:34,350 John Cook: where we're based, the number is far, far higher. I've 29 00:01:34,350 --> 00:01:36,600 John Cook: been talking to some venture capitalists who are saying it's 30 00:01:36,600 --> 00:01:41,970 John Cook: upwards of 80, 85, even 90% of venture backed startups have their money 31 00:01:42,120 --> 00:01:47,160 John Cook: parked in Silicon Valley Bank. This is a crisis that 32 00:01:47,160 --> 00:01:51,540 John Cook: no one saw coming, no one. There's so many risks 33 00:01:51,540 --> 00:01:55,740 John Cook: and challenges and startups to begin with, especially in this 34 00:01:55,740 --> 00:01:59,670 John Cook: current economy where financing and funding was already drying up 35 00:02:00,270 --> 00:02:03,330 John Cook: and you layer on top of that the Silicon Valley 36 00:02:03,330 --> 00:02:10,560 John Cook: Bank closure and it is scary stuff. Entrepreneurs are scrambling, 37 00:02:10,560 --> 00:02:14,760 John Cook: venture capitalists are scrambling. I've been talking to both here 38 00:02:14,760 --> 00:02:19,019 John Cook: over the last couple days and it's really unprecedented. I 39 00:02:19,020 --> 00:02:22,889 John Cook: spoke to one VC, longtime VC in the Seattle area who 40 00:02:22,889 --> 00:02:27,270 John Cook: said in 25 years of tracking and being a part 41 00:02:27,270 --> 00:02:31,620 John Cook: of the venture capital startup ecosystem, he's never seen anything 42 00:02:31,680 --> 00:02:35,820 John Cook: like this and that includes the great recession of 2008. 43 00:02:36,360 --> 00:02:39,179 John Cook: I think we should bring that up in the context 44 00:02:39,179 --> 00:02:43,740 John Cook: of when you think about the great recession 12, 13 years 45 00:02:43,740 --> 00:02:50,070 John Cook: ago, that was having a broad- based impact across the 46 00:02:50,070 --> 00:02:54,239 John Cook: entire economy, the global economy was at risk. In this 47 00:02:54,240 --> 00:02:58,139 John Cook: instance, we're talking about the same sort of impact but 48 00:02:58,169 --> 00:03:02,430 John Cook: only contained to the startup and venture capital community. For 49 00:03:02,430 --> 00:03:05,700 John Cook: those folks that are running companies that are venture backed, 50 00:03:06,000 --> 00:03:10,590 John Cook: this is the equivalent of what happened in 2008. So 51 00:03:10,620 --> 00:03:14,280 John Cook: it's scary times and people are scrambling trying to figure 52 00:03:14,280 --> 00:03:17,009 John Cook: it out and we're not sure where this is going 53 00:03:17,010 --> 00:03:17,550 John Cook: to play out. 54 00:03:17,910 --> 00:03:20,760 Todd Bishop: There are some short term implications and questions that we 55 00:03:20,760 --> 00:03:22,889 Todd Bishop: can talk about, but I want to take a step 56 00:03:22,889 --> 00:03:26,100 Todd Bishop: back real quick and set the context. As you said, 57 00:03:26,340 --> 00:03:29,669 Todd Bishop: this was not on the radar of folks. Silicon Valley 58 00:03:29,669 --> 00:03:33,870 Todd Bishop: Bank came out earlier this week on Wednesday and explained 59 00:03:33,870 --> 00:03:37,710 Todd Bishop: that they were essentially having a capital crunch caused by 60 00:03:37,920 --> 00:03:41,580 Todd Bishop: higher burn rates among the startups that they serve and 61 00:03:41,580 --> 00:03:46,230 Todd Bishop: higher interest rates. What's your sense, John, of the causes 62 00:03:46,230 --> 00:03:50,070 Todd Bishop: here? We're talking about the effects obviously, but what caused 63 00:03:50,070 --> 00:03:51,390 Todd Bishop: this from your perspective? 64 00:03:51,599 --> 00:03:55,560 John Cook: Well, you're right. The venture capital industry has slowed down 65 00:03:55,590 --> 00:04:00,600 John Cook: substantially in the last six, 12 months from certainly the 66 00:04:00,600 --> 00:04:03,510 John Cook: high flying days of where we're at. So there's just 67 00:04:03,510 --> 00:04:08,820 John Cook: isn't as much money flowing into the coffers of startup 68 00:04:08,820 --> 00:04:11,639 John Cook: companies, and as a result, there's not as much money 69 00:04:11,969 --> 00:04:17,010 John Cook: floating into Silicon Valley Bank. So that's the big macro 70 00:04:17,010 --> 00:04:21,000 John Cook: problem, but that's not enough to explain why a bank 71 00:04:21,059 --> 00:04:25,529 John Cook: of Silicon Valley Bank's history, they're 40 years old and 72 00:04:25,529 --> 00:04:30,209 John Cook: the best known bank in the technology industry has encountered 73 00:04:30,209 --> 00:04:33,299 John Cook: this problem. It does go beyond that from what I'm 74 00:04:33,300 --> 00:04:38,460 John Cook: hearing, and I'm not a banking expert, but they had 75 00:04:38,460 --> 00:04:42,330 John Cook: some pretty bad bets tied into some bonds that they 76 00:04:42,330 --> 00:04:47,099 John Cook: had purchased and then sold. As the inflation rate had 77 00:04:47,100 --> 00:04:53,940 John Cook: gone up, those investments they made soured and that caused 78 00:04:54,000 --> 00:04:58,290 John Cook: a bit of shock on Thursday, Wednesday, Thursday when that 79 00:04:58,290 --> 00:05:03,029 John Cook: occurred, and really as it's been described to me, it's 80 00:05:03,029 --> 00:05:07,170 John Cook: a death spiral. They were spiraling and then once the 81 00:05:07,170 --> 00:05:10,620 John Cook: word got out and some larger venture capital firms started 82 00:05:10,620 --> 00:05:15,089 John Cook: encouraging their startups to pull their money or very much 83 00:05:15,089 --> 00:05:20,760 John Cook: consider getting out of Silicon Valley Bank, it just mushroomed 84 00:05:21,150 --> 00:05:24,480 John Cook: and it was not slowing down. That's when the federal 85 00:05:24,480 --> 00:05:27,510 John Cook: government had to step in. I don't know how it's 86 00:05:27,510 --> 00:05:31,440 John Cook: going to play out. I think this weekend is critical. 87 00:05:32,279 --> 00:05:36,089 John Cook: I believe there are going to be some potential suitors 88 00:05:36,089 --> 00:05:39,210 John Cook: that come in and maybe step in, large banks like 89 00:05:39,210 --> 00:05:42,510 John Cook: a JP Morgan Chase, which has a competitive business to 90 00:05:42,510 --> 00:05:46,110 John Cook: Silicon Valley Bank and banking these types of companies, they 91 00:05:46,110 --> 00:05:50,639 John Cook: could come in and essentially rescue Silicon Valley Bank maybe 92 00:05:50,639 --> 00:05:53,609 John Cook: at the behest of the government asking them to do 93 00:05:53,610 --> 00:05:57,240 John Cook: so. This weekend's going to be very critical to see 94 00:05:57,240 --> 00:06:00,960 John Cook: what happens to the assets of Silicon Valley Bank, but 95 00:06:00,960 --> 00:06:04,020 John Cook: the speed at which this organization, which has been an 96 00:06:04,020 --> 00:06:07,650 John Cook: institution in the tech industry for 40 years, the speed 97 00:06:07,650 --> 00:06:10,770 John Cook: at which it declined is just crazy. 98 00:06:11,040 --> 00:06:14,339 Todd Bishop: John, to double down on something you said earlier, this 99 00:06:14,339 --> 00:06:18,870 Todd Bishop: is similar in some ways to what happened across the 100 00:06:18,870 --> 00:06:23,130 Todd Bishop: banking sector in 2008 with the collapse of banks including 101 00:06:23,130 --> 00:06:26,880 Todd Bishop: Washington Mutual, which remains the largest bank collapse in U. 102 00:06:26,880 --> 00:06:29,669 Todd Bishop: S. history. That was of course the Seattle based bank, 103 00:06:29,940 --> 00:06:32,790 Todd Bishop: which was absorbed by JP Morgan in a very similar 104 00:06:32,849 --> 00:06:36,510 Todd Bishop: situation, but that was broad based across the economy. Here 105 00:06:36,540 --> 00:06:41,339 Todd Bishop: you have a similar explosion but confined to this sector 106 00:06:41,339 --> 00:06:44,790 Todd Bishop: so far at least. So in that way, using that 107 00:06:44,790 --> 00:06:49,199 Todd Bishop: analogy, the impact on the people who are impacted is greater. 108 00:06:49,259 --> 00:06:52,649 John Cook: Yeah. I think the scary thing right now for entrepreneurs 109 00:06:53,549 --> 00:06:56,849 John Cook: with Silicon Valley Bank is the bank is closed right now. 110 00:06:56,850 --> 00:07:01,049 John Cook: I mean, they can't access their money, it's frozen. They're 111 00:07:01,050 --> 00:07:05,070 John Cook: hopeful Monday that it opens back up. From what I'm 112 00:07:05,070 --> 00:07:09,599 John Cook: hearing from VCs, they're saying, " Hey, put your wire in 113 00:07:09,599 --> 00:07:12,269 John Cook: to get your money out of Silicon Valley Bank. Get 114 00:07:12,270 --> 00:07:14,940 John Cook: in line. You know, don't want to be the person that's 115 00:07:14,940 --> 00:07:18,780 John Cook: last in line here." Even if you don't intend to 116 00:07:18,900 --> 00:07:20,940 John Cook: take your money out because I guess in the ideal 117 00:07:20,940 --> 00:07:24,599 John Cook: scenario you have a JP Morgan Chase or a Bank 118 00:07:24,599 --> 00:07:28,469 John Cook: of America step in, rescue the bank, assure all those 119 00:07:28,469 --> 00:07:32,010 John Cook: clients that their money is safe, maybe even give them 120 00:07:32,010 --> 00:07:35,250 John Cook: some incentives to stay with the bank, the new bank 121 00:07:35,460 --> 00:07:38,520 John Cook: that's taking over SVB. Because the real scary thing is 122 00:07:38,520 --> 00:07:41,400 John Cook: payroll's coming up midweek next week for a number of 123 00:07:41,400 --> 00:07:44,969 John Cook: these companies, and if your money is frozen, they're not 124 00:07:44,969 --> 00:07:48,720 John Cook: going to be able to pay their employees as of 125 00:07:48,780 --> 00:07:52,890 John Cook: next Wednesday perhaps. So there's a lot at play here 126 00:07:52,890 --> 00:07:57,328 John Cook: that if it starts to trickle down to tens of 127 00:07:57,330 --> 00:08:00,480 John Cook: thousands of people that aren't getting paid as a result 128 00:08:00,480 --> 00:08:04,559 John Cook: of this, that is really scary. My gut is the 129 00:08:04,559 --> 00:08:07,560 John Cook: government doesn't want to let that happen because that would create, 130 00:08:07,590 --> 00:08:10,290 John Cook: I think, a negative spiral for the rest of the economy. 131 00:08:11,580 --> 00:08:14,130 John Cook: I think that's why the federal government stepped in and 132 00:08:14,130 --> 00:08:18,000 John Cook: stopped this before it got really ugly, but we'll see 133 00:08:18,120 --> 00:08:21,090 John Cook: how it plays out by Monday and what happens next. 134 00:08:21,900 --> 00:08:24,570 Todd Bishop: All right. We are talking about the collapse of Silicon 135 00:08:24,570 --> 00:08:28,080 Todd Bishop: Valley Bank. You're listening to GeekWire. It's a special podcast 136 00:08:28,290 --> 00:08:29,580 Todd Bishop: and we'll be right back. 137 00:08:33,270 --> 00:08:36,300 Todd Bishop: Welcome back. It's Todd Bishop with John Cook. We're talking 138 00:08:36,300 --> 00:08:39,420 Todd Bishop: this week about the collapse of Silicon Valley Bank. John, 139 00:08:39,450 --> 00:08:43,320 Todd Bishop: you just mentioned the payroll implications. That has to be 140 00:08:43,380 --> 00:08:46,890 Todd Bishop: just a huge nightmare over this weekend. I can't even 141 00:08:46,890 --> 00:08:51,090 Todd Bishop: imagine the consternation and the stress that that will be 142 00:08:51,090 --> 00:08:54,238 Todd Bishop: causing founders Saturday and Sunday not knowing what's going to 143 00:08:54,240 --> 00:08:57,179 Todd Bishop: happen on Monday and their employees as well. 144 00:08:57,599 --> 00:09:00,419 John Cook: Yeah, and it's interesting. We're even seeing and we're having 145 00:09:00,450 --> 00:09:03,990 John Cook: some great reporting by our reporters at GeekWire, Nathan Beck 146 00:09:03,990 --> 00:09:09,150 John Cook: and Taylor Soper, a public company Absci based in Vancouver, 147 00:09:09,150 --> 00:09:14,520 John Cook: Washington that actually issued a regulatory filing basically saying, " Hey, 148 00:09:14,520 --> 00:09:16,738 John Cook: we don't have any cash with Silicon Valley Bank." I 149 00:09:16,740 --> 00:09:19,559 John Cook: mean, that's how bad it's gotten is you have publicly 150 00:09:19,559 --> 00:09:22,710 John Cook: traded firms that are coming out saying, " We have no 151 00:09:22,710 --> 00:09:28,320 John Cook: exposure here." Another Seattle based organization, the Alliance of Angels, 152 00:09:28,320 --> 00:09:30,809 John Cook: which is an angel investment group, so they have a 153 00:09:30,809 --> 00:09:36,119 John Cook: number of investment across dozens of startup companies put out 154 00:09:36,119 --> 00:09:40,140 John Cook: a message to their subscriber base this morning talking about 155 00:09:40,140 --> 00:09:45,240 John Cook: the collapse of Silicon Valley Bank and recommending another bank 156 00:09:45,330 --> 00:09:52,139 John Cook: to potentially help navigate this very challenging situation. So you 157 00:09:52,139 --> 00:09:55,110 John Cook: do see at this point, as is the case whenever 158 00:09:55,110 --> 00:09:59,309 John Cook: there's chaos in the business world, folks circling trying to 159 00:09:59,309 --> 00:10:02,578 John Cook: take advantage of the situation. I'm not saying anyone's doing 160 00:10:02,580 --> 00:10:06,090 John Cook: anything wrong, it's a chaotic time. People aren't sure what 161 00:10:06,090 --> 00:10:09,088 John Cook: to do and there are organizations that are trying to 162 00:10:09,089 --> 00:10:13,468 John Cook: step in to, I mean, take advantage of the situation frankly and make 163 00:10:13,470 --> 00:10:17,520 John Cook: sure that they can potentially help these clients that are 164 00:10:17,580 --> 00:10:20,429 John Cook: struggling right now. I've never seen anything like this, Todd. 165 00:10:20,429 --> 00:10:23,639 John Cook: I mean, big picture, it is so rapid at how 166 00:10:23,639 --> 00:10:27,179 John Cook: this bank collapsed, which has been such an institution in 167 00:10:27,179 --> 00:10:31,679 John Cook: the startup and venture community and really kind of blindsided 168 00:10:31,679 --> 00:10:35,550 John Cook: so many folks. So anytime that happens obviously in the 169 00:10:35,550 --> 00:10:37,800 John Cook: financial world, it's not good. 170 00:10:37,920 --> 00:10:41,130 Todd Bishop: Let's put that statement by you in context. You started 171 00:10:41,130 --> 00:10:44,759 Todd Bishop: covering venture capital and startups right before dotcom bust if 172 00:10:44,759 --> 00:10:45,840 Todd Bishop: I'm not mistaken. 173 00:10:46,080 --> 00:10:49,980 John Cook: Yeah. I've covered the dot-com bust. I've covered the great recession. 174 00:10:50,070 --> 00:10:54,630 John Cook: I'm covering this current period. This one is really unusual. 175 00:10:54,630 --> 00:10:58,020 John Cook: I mean the dotcom bust, it was a lot of companies, 176 00:10:58,440 --> 00:11:02,429 John Cook: a lot of startup technology companies that were publicly traded 177 00:11:02,429 --> 00:11:06,809 John Cook: and there was a mass euphoria in the greater population 178 00:11:06,809 --> 00:11:11,280 John Cook: propping those companies up in the public markets. So there 179 00:11:11,280 --> 00:11:15,840 John Cook: was a contagion effect amongst retail investors who were just 180 00:11:16,559 --> 00:11:20,370 John Cook: buying into pets. com and homegrocer. com and all the 181 00:11:20,370 --> 00:11:23,760 John Cook: dotcoms thinking it was the greatest thing in the world, 182 00:11:23,760 --> 00:11:27,540 John Cook: not really understanding the internet or the business models. Many 183 00:11:27,540 --> 00:11:32,610 John Cook: of them didn't have revenue to speak of and were 184 00:11:32,670 --> 00:11:37,799 John Cook: burning tons of capital. In this case, companies that are 185 00:11:37,799 --> 00:11:41,069 John Cook: being banked by Silicon Valley Bank could be very strong companies. 186 00:11:41,070 --> 00:11:46,350 John Cook: They could have profits or strong revenue, but the rug's 187 00:11:46,350 --> 00:11:49,200 John Cook: kind of getting pulled out from under them and it's 188 00:11:49,200 --> 00:11:50,760 John Cook: outside of their control. 189 00:11:51,059 --> 00:11:53,099 Todd Bishop: Putting this in the context of the last six months or 190 00:11:53,099 --> 00:11:56,340 Todd Bishop: so, it feels like it's the latest step in a 191 00:11:56,340 --> 00:11:59,129 Todd Bishop: bit of a comeuppance for the tech industry overall. If 192 00:11:59,129 --> 00:12:02,340 Todd Bishop: you look at the layoffs and the ways that big 193 00:12:02,340 --> 00:12:07,440 Todd Bishop: tech companies have reacted to rising interest rates and increasing 194 00:12:07,440 --> 00:12:11,249 Todd Bishop: levels of caution among their customers, here now you have 195 00:12:11,309 --> 00:12:15,480 Todd Bishop: the broader economy having a specific impact on startups, which 196 00:12:15,480 --> 00:12:19,770 Todd Bishop: were already reeling from the overall decline in venture capital, 197 00:12:19,770 --> 00:12:23,370 Todd Bishop: the lack of IPOs, this feels like not the second 198 00:12:23,370 --> 00:12:25,679 Todd Bishop: shoe to drop, but the third or fourth for the 199 00:12:25,920 --> 00:12:27,210 Todd Bishop: tech industry overall. 200 00:12:27,300 --> 00:12:29,759 John Cook: Yeah, I mean, that's a good point. This was an 201 00:12:29,759 --> 00:12:33,960 John Cook: industry that had been riding high for more than a 202 00:12:33,960 --> 00:12:38,670 John Cook: decade and had hit hard times and it's been extremely 203 00:12:38,670 --> 00:12:41,940 John Cook: hard to get venture financing. It's been extremely hard to 204 00:12:41,940 --> 00:12:45,750 John Cook: get venture debt, which Silicon Valley Bank is an expert 205 00:12:45,750 --> 00:12:48,690 John Cook: in historically and has provided a lot of loans and 206 00:12:48,690 --> 00:12:52,770 John Cook: financing directly to these companies and that has dried up. 207 00:12:52,980 --> 00:12:57,238 John Cook: So companies were already struggling with hard times and then 208 00:12:57,240 --> 00:12:59,910 John Cook: you throw a curve ball like this into the mix 209 00:12:59,910 --> 00:13:03,719 John Cook: and it's not a fun time to be an entrepreneur 210 00:13:03,719 --> 00:13:05,400 John Cook: dealing with this type of situation. 211 00:13:05,580 --> 00:13:08,189 Todd Bishop: John, there's so much happening here. Just to let folks 212 00:13:08,190 --> 00:13:10,739 Todd Bishop: know, we're recording this right around noon Pacific time on 213 00:13:10,740 --> 00:13:15,270 Todd Bishop: March 10th Friday. Be sure to follow GeekWire. We're tracking 214 00:13:15,270 --> 00:13:18,689 Todd Bishop: this minute by minute. Are there any other tidbits, things 215 00:13:18,690 --> 00:13:21,000 Todd Bishop: that you've picked up? I'm looking at our Slack thread, 216 00:13:21,000 --> 00:13:26,039 Todd Bishop: which has become epic among the team here. Anything else 217 00:13:26,040 --> 00:13:28,320 Todd Bishop: though that you would want to get across just in 218 00:13:28,320 --> 00:13:30,389 Todd Bishop: terms of insights into the current situation? 219 00:13:30,570 --> 00:13:33,540 John Cook: The other thing to think about is there are no 220 00:13:33,540 --> 00:13:37,740 John Cook: deals getting done right now, of course. So think about 221 00:13:37,740 --> 00:13:41,550 John Cook: if you were a company earlier this week getting your 222 00:13:41,670 --> 00:13:44,790 John Cook: final term sheet signed and getting ready to get that 223 00:13:44,790 --> 00:13:51,150 John Cook: money wired to you, that's on pause. The worry I 224 00:13:51,150 --> 00:13:54,120 John Cook: think from that is does that continue? Is this just 225 00:13:54,120 --> 00:13:58,110 John Cook: kind of adding to this feeling that the startup and 226 00:13:58,110 --> 00:14:05,160 John Cook: venture market is not doing well? So I'm concerned for 227 00:14:05,160 --> 00:14:07,858 John Cook: companies that are looking to raise their next round of 228 00:14:07,860 --> 00:14:12,809 John Cook: funding how long this persists because the negative implications of 229 00:14:12,809 --> 00:14:17,160 John Cook: it could spread beyond just the next week while we're 230 00:14:17,160 --> 00:14:20,730 John Cook: kind of in crisis scramble mode to try to figure 231 00:14:20,730 --> 00:14:24,209 John Cook: out how to make sure your bank is staying in 232 00:14:24,240 --> 00:14:26,160 John Cook: business and you can get money. I mean, that's the 233 00:14:26,160 --> 00:14:30,660 John Cook: number one thing here is, I mean, startups die because 234 00:14:30,660 --> 00:14:33,179 John Cook: they run out of cash for all sorts of reasons. 235 00:14:33,450 --> 00:14:35,280 John Cook: This was a reason that I don't think was in 236 00:14:35,280 --> 00:14:38,130 John Cook: the playbook for many, that they wouldn't be able to 237 00:14:38,190 --> 00:14:42,240 John Cook: pull their cash out of Silicon Valley Bank. Now again, 238 00:14:42,510 --> 00:14:43,860 John Cook: I don't want to be in panic mode here because 239 00:14:43,860 --> 00:14:46,230 John Cook: there are steps that the federal government's taking. There could 240 00:14:46,230 --> 00:14:49,440 John Cook: be a white knight that steps in to buy the 241 00:14:49,440 --> 00:14:52,260 John Cook: assets of Silicon Valley Bank that shores this up and 242 00:14:52,260 --> 00:14:56,610 John Cook: shores it up relatively quickly. But I think the after 243 00:14:56,610 --> 00:14:59,760 John Cook: effects of this kind of are adding to a narrative 244 00:14:59,850 --> 00:15:04,590 John Cook: of it's not a great time to be running a 245 00:15:04,590 --> 00:15:09,329 John Cook: startup because of the cash situation. Generally it was harder 246 00:15:09,330 --> 00:15:12,509 John Cook: to raise money. It's been a challenge over the last 247 00:15:12,509 --> 00:15:16,889 John Cook: six, 12 months and this certainly does not help smaller 248 00:15:16,889 --> 00:15:20,910 John Cook: organization startups that are two, three, four years old. 249 00:15:21,330 --> 00:15:24,570 Todd Bishop: So just to recap here, the news today Friday is 250 00:15:24,570 --> 00:15:27,750 Todd Bishop: that Silicon Valley Bank has been closed by the California 251 00:15:27,750 --> 00:15:31,139 Todd Bishop: Department of Financial Protection. It's shut down the firm and 252 00:15:31,139 --> 00:15:34,620 Todd Bishop: turned it over to the Federal Deposit Insurance Corporation, FDIC. 253 00:15:35,969 --> 00:15:40,560 Todd Bishop: Those F D I C insurance levels on Silicon Valley 254 00:15:40,560 --> 00:15:43,530 Todd Bishop: Bank deposits, as I understand it from my reading, John, 255 00:15:43,800 --> 00:15:47,819 Todd Bishop: are about 250, 000. What are the implications there? Do you 256 00:15:47,820 --> 00:15:49,770 Todd Bishop: have an understanding for how that plays out in terms 257 00:15:49,770 --> 00:15:51,359 Todd Bishop: of the FDIC insurance here? 258 00:15:51,450 --> 00:15:54,270 John Cook: Well, yeah, you're right. The insurance is only up to $ 259 00:15:54,300 --> 00:15:57,960 John Cook: 250,000 for these companies. So if you're a company that 260 00:15:57,960 --> 00:16:02,760 John Cook: has 10 million banked with Silicon Valley Bank, you're not 261 00:16:02,760 --> 00:16:05,280 John Cook: that protected. I mean, you're protected up to a point, 262 00:16:05,280 --> 00:16:10,319 John Cook: but not for the majority of your cash position. That's 263 00:16:10,320 --> 00:16:12,930 John Cook: why a lot of the venture capitalists are advising their 264 00:16:12,930 --> 00:16:16,620 John Cook: entrepreneurs to get in line so you can get a 265 00:16:16,620 --> 00:16:20,250 John Cook: wire of your money out of Silicon Valley Bank to 266 00:16:20,250 --> 00:16:23,790 John Cook: another bank because, again, don't want to be last in 267 00:16:23,790 --> 00:16:28,139 John Cook: line there for the balance of that money. As we've 268 00:16:28,139 --> 00:16:31,110 John Cook: talked about, a lot of these startup companies have most 269 00:16:31,110 --> 00:16:34,410 John Cook: of their cash tied up in this bank well beyond 270 00:16:34,590 --> 00:16:39,389 John Cook: the 250,000 that's guaranteed. So that is where I think 271 00:16:39,389 --> 00:16:43,200 John Cook: it's a frightening situation for a lot of these companies 272 00:16:43,710 --> 00:16:46,619 John Cook: and why it needs to be shored up, that that 273 00:16:46,619 --> 00:16:50,190 John Cook: money is guaranteed to be there for them beyond the 274 00:16:50,190 --> 00:16:52,620 John Cook: 250,000 guaranteed by the federal government. 275 00:16:53,280 --> 00:16:56,820 Todd Bishop: Those are cash balances we're talking about, deposits, money in 276 00:16:56,820 --> 00:17:00,120 Todd Bishop: the bank essentially. There's also the issue of venture debt, 277 00:17:00,120 --> 00:17:04,019 Todd Bishop: which I recognize can be something that fuels a lot 278 00:17:04,020 --> 00:17:07,290 Todd Bishop: of companies where they take out these loans that can 279 00:17:07,290 --> 00:17:11,879 Todd Bishop: cover expenses and provide them with some additional runway. Silicon 280 00:17:11,880 --> 00:17:14,400 Todd Bishop: Valley Bank was also a major lender in that regard. 281 00:17:14,460 --> 00:17:19,020 John Cook: Absolutely. It was not uncommon for when a company raised 282 00:17:19,020 --> 00:17:23,969 John Cook: let's say a $ 5 million round of venture capital to 283 00:17:23,969 --> 00:17:28,020 John Cook: layer on some venture debt through a company like Silicon 284 00:17:28,020 --> 00:17:30,750 John Cook: Valley Bank to the tune of one, two, $ 3 million. 285 00:17:32,670 --> 00:17:39,148 John Cook: That is now additional capital and runway that it's unclear 286 00:17:39,150 --> 00:17:42,629 John Cook: to me what is happening with that. Presumably if a 287 00:17:42,629 --> 00:17:45,540 John Cook: JP Morgan Chase comes in and buys Silicon Valley Bank, 288 00:17:45,840 --> 00:17:50,010 John Cook: they would not only bank the money but also honor 289 00:17:50,010 --> 00:17:55,199 John Cook: that venture debt, that loan essentially that is outstanding. But 290 00:17:55,710 --> 00:17:59,129 John Cook: obviously it's a fluid situation and people are concerned about 291 00:17:59,129 --> 00:18:01,290 John Cook: that as well. I think we should dig into that 292 00:18:01,290 --> 00:18:04,230 John Cook: some more, Todd, and get some experts that may know 293 00:18:04,950 --> 00:18:09,330 John Cook: what actually happens to those loans provided by Silicon Valley 294 00:18:09,330 --> 00:18:10,559 John Cook: Bank to these startups. 295 00:18:10,859 --> 00:18:14,638 Todd Bishop: So the FDIC in a statement on Friday morning said, " 296 00:18:14,880 --> 00:18:19,410 Todd Bishop: Customers with accounts in excess of $ 250,000 should contact the 297 00:18:19,410 --> 00:18:26,638 Todd Bishop: FDIC toll free, 1-866-799- 0959." Then it continues, " The FDIC 298 00:18:27,030 --> 00:18:29,759 Todd Bishop: as a receiver will retain all the assets from Silicon 299 00:18:29,759 --> 00:18:34,019 Todd Bishop: Valley Bank for later disposition." It says, " Loan customers should 300 00:18:34,020 --> 00:18:36,449 Todd Bishop: continue to make their payments as usual," which is quite 301 00:18:36,449 --> 00:18:40,230 Todd Bishop: an extraordinary request under the circumstances. But I guess it's 302 00:18:40,230 --> 00:18:44,730 Todd Bishop: somewhat comforting at least in that it indicates some status quo. 303 00:18:45,450 --> 00:18:49,079 John Cook: Yeah. I was talking to some venture capitalists last night 304 00:18:49,080 --> 00:18:53,250 John Cook: about this, and before this all went down today and 305 00:18:53,250 --> 00:18:55,800 John Cook: they were predicting like, " What's going to happen here?" No 306 00:18:55,800 --> 00:18:57,600 John Cook: one knew what was going to play out. One of 307 00:18:57,600 --> 00:19:02,070 John Cook: the venture capitalists basically said he would not be surprised 308 00:19:02,070 --> 00:19:05,969 John Cook: if somebody bought Silicon Valley Bank by Friday morning when 309 00:19:05,969 --> 00:19:09,599 John Cook: we're recording this. There was a debate and discussion over 310 00:19:09,599 --> 00:19:13,198 John Cook: whether that was possible or not, because that's moving relatively 311 00:19:13,200 --> 00:19:16,530 John Cook: quickly in the world of M& A to get a 312 00:19:16,530 --> 00:19:19,228 John Cook: deal done that quickly, especially in a situation such as 313 00:19:19,230 --> 00:19:23,759 John Cook: this. Well, essentially it happened, right? Somebody did take over 314 00:19:24,450 --> 00:19:28,709 John Cook: Silicon Valley Bank, the federal government, and that's where it's 315 00:19:28,709 --> 00:19:32,670 John Cook: just a very unusual situation to have the federal government 316 00:19:32,670 --> 00:19:35,490 John Cook: step in and take control of Silicon Valley Bank at 317 00:19:35,490 --> 00:19:38,070 John Cook: this juncture. I was frankly a bit surprised by it 318 00:19:38,070 --> 00:19:40,679 John Cook: because this is a real niche bank. I mean, it's 319 00:19:40,679 --> 00:19:44,429 John Cook: banking startup companies in the tech industry and life sciences 320 00:19:44,429 --> 00:19:48,329 John Cook: industry for the most part. I guess my thought, and 321 00:19:48,510 --> 00:19:51,090 John Cook: I'd love to hear discussion and debate around this, would 322 00:19:51,090 --> 00:19:54,240 John Cook: be that the federal government wouldn't get involved and engaged 323 00:19:54,240 --> 00:19:57,119 John Cook: in that. But Silicon Valley Bank is a large bank. 324 00:19:57,119 --> 00:19:59,160 John Cook: I think I saw that they were the 16th largest 325 00:19:59,160 --> 00:20:02,938 John Cook: bank in the country. They had a very large market cap 326 00:20:02,940 --> 00:20:08,490 John Cook: as of at least several weeks ago. Yeah, 209 billion of 327 00:20:08,490 --> 00:20:12,030 John Cook: total assets and 175 billion in deposits at the year 328 00:20:12,030 --> 00:20:17,400 John Cook: end 2022. So it's a good sized bank. The other 329 00:20:17,400 --> 00:20:23,489 John Cook: interesting tidbit here, Todd, that was passed along, Goldman Sachs 330 00:20:24,119 --> 00:20:26,970 John Cook: if you look back just less than a week ago, 331 00:20:27,090 --> 00:20:31,020 John Cook: and there were a number of investment banking firms that were 332 00:20:31,109 --> 00:20:35,580 John Cook: looking at the stock price of Silicon Valley Bank, and 333 00:20:35,759 --> 00:20:41,160 John Cook: they were putting buy targets. They were encouraging investors to 334 00:20:41,160 --> 00:20:44,370 John Cook: buy this stock and saying that the target would be $ 335 00:20:44,430 --> 00:20:49,020 John Cook: 312 a share on Silicon Valley Bank. This was just 336 00:20:49,020 --> 00:20:51,540 John Cook: a week ago. I guess I bring that up in 337 00:20:51,540 --> 00:20:54,059 John Cook: the context of no one really knows what's going on. 338 00:20:54,990 --> 00:20:57,988 John Cook: These are supposed to be like the smartest people on 339 00:20:57,990 --> 00:21:03,510 John Cook: the planet studying the intricacies of our financial institutions, and 340 00:21:03,510 --> 00:21:06,240 John Cook: less than a week ago, there was a buy rating 341 00:21:06,240 --> 00:21:10,590 John Cook: on Silicon Valley Bank with expectations the stock was going 342 00:21:10,590 --> 00:21:13,679 John Cook: to go up. Here we are a week later in 343 00:21:13,679 --> 00:21:17,730 John Cook: this situation. It's just like, wow, what whiplash to go 344 00:21:17,730 --> 00:21:20,130 John Cook: from that to where we are today. 345 00:21:20,640 --> 00:21:24,119 Todd Bishop: It's crazy. Just to wrap this up, John, I'm struck 346 00:21:24,119 --> 00:21:28,080 Todd Bishop: by even yesterday the optimism that we were hearing from 347 00:21:28,080 --> 00:21:30,149 Todd Bishop: some venture capitalists and investors. 348 00:21:30,210 --> 00:21:33,539 John Cook: Well, and from Silicon Valley Bank too, Todd. Yeah, absolutely. 349 00:21:33,690 --> 00:21:36,270 Todd Bishop: Of course, Silicon Valley Bank has in that context a 350 00:21:36,270 --> 00:21:40,440 Todd Bishop: fiduciary duty to make full disclosures and to be realistic. 351 00:21:40,440 --> 00:21:43,410 Todd Bishop: But there's also a tendency by many companies, and I 352 00:21:43,410 --> 00:21:46,438 Todd Bishop: assume this played a role here, to be somewhat optimistic 353 00:21:46,440 --> 00:21:48,869 Todd Bishop: by default. I mean, that tends to be the way 354 00:21:48,869 --> 00:21:52,379 Todd Bishop: they go. That's my bigger point. It feels like that 355 00:21:52,379 --> 00:21:54,660 Todd Bishop: has been the approach of the tech industry, to your 356 00:21:54,660 --> 00:21:57,990 Todd Bishop: point, for more than a decade here, where they could 357 00:21:57,990 --> 00:22:01,020 Todd Bishop: be optimistic by default because more often than not things 358 00:22:01,140 --> 00:22:05,099 Todd Bishop: went up. But here you have I think an extra 359 00:22:05,099 --> 00:22:06,210 Todd Bishop: reminder that- 360 00:22:06,210 --> 00:22:10,199 John Cook: That things don't always go up. Yeah, sometimes things go 361 00:22:10,199 --> 00:22:12,539 John Cook: down. Sometimes things do go down. 362 00:22:12,660 --> 00:22:13,200 Todd Bishop: Exactly. 363 00:22:13,200 --> 00:22:14,820 John Cook: I think we're learning that. 364 00:22:14,970 --> 00:22:18,810 Todd Bishop: That optimism is not always reality and the next couple 365 00:22:18,810 --> 00:22:21,448 Todd Bishop: days, but to your point, the next few weeks and 366 00:22:21,450 --> 00:22:24,658 Todd Bishop: the next few months could be very interesting if you 367 00:22:24,660 --> 00:22:28,619 Todd Bishop: look at this as a watershed moment of sorts that's 368 00:22:28,619 --> 00:22:30,720 Todd Bishop: been building up for a number of months in the 369 00:22:30,720 --> 00:22:31,410 Todd Bishop: tech industry. 370 00:22:31,470 --> 00:22:33,510 John Cook: We're going to keep watching it. It's a big story 371 00:22:33,660 --> 00:22:37,980 John Cook: and impacts a lot of folks in the world that 372 00:22:37,980 --> 00:22:41,940 John Cook: we cover. So we're hopefully going to continue to learn 373 00:22:41,940 --> 00:22:43,859 John Cook: more here and report it out here in the coming 374 00:22:43,859 --> 00:22:46,380 John Cook: days on the impact on this. 375 00:22:46,619 --> 00:22:51,060 Todd Bishop: If you or your company or your investment portfolio are 376 00:22:51,060 --> 00:22:54,270 Todd Bishop: impacted by this development with Silicon Valley Bank, we would 377 00:22:54,270 --> 00:22:56,760 Todd Bishop: love to hear from you to help inform our coverage. 378 00:22:56,790 --> 00:22:59,760 Todd Bishop: You can reach us and our news team at tips@ 379 00:22:59,880 --> 00:23:04,289 Todd Bishop: geekwire.com. Of course, you can reach John john@ geekwire. com and 380 00:23:04,289 --> 00:23:07,619 Todd Bishop: myself at todd@ geekwire. com. As John said, we will 381 00:23:07,619 --> 00:23:10,948 Todd Bishop: continue to report on this story. Our colleagues, Nathan Beck 382 00:23:10,950 --> 00:23:14,398 Todd Bishop: and Taylor Soper, are really doing some thorough coverage if 383 00:23:14,400 --> 00:23:17,160 Todd Bishop: you want to check out what's happening on geekwire. com 384 00:23:17,160 --> 00:23:18,929 Todd Bishop: and we will link to all of those stories from 385 00:23:18,929 --> 00:23:22,500 Todd Bishop: the show notes. We will be back tomorrow with our 386 00:23:22,500 --> 00:23:27,690 Todd Bishop: normal weekly podcast focused on an interesting tech media startup 387 00:23:27,690 --> 00:23:31,590 Todd Bishop: that's attempting to be the tech meme for aerospace news. 388 00:23:31,830 --> 00:23:34,800 Todd Bishop: So check that out this weekend on GeekWire. Until then, 389 00:23:35,099 --> 00:23:36,000 Todd Bishop: I'm Todd Bishop. 390 00:23:36,359 --> 00:23:36,989 John Cook: I'm John Cook. 391 00:23:37,170 --> 00:23:39,210 Todd Bishop: Thanks for listening to the GeekWire podcast.